governance, political economy, institutional development and economic regulation

Posts tagged ‘Tamil Nadu’

Do Indian voters remain deeply aligned with caste, clan and community (read religious) interests, as reported in the ongoing state elections? Possibly, yes, they do. Continued allegiance to traditional identities makes sense, if new ones never had the chance to take root.

Industrial work was one such silo-buster, as is urbanisation. Both, have had a limited impact on India’s social profile. Large, organised industry employs barely 10 million people, or just two per cent of the workforce. The impact of urbanisation is still far too recent to induce a change in social behaviour. Migration by men, for work in the urban, informal sector, has done a lot to contribute to the urban sprawl. But it doesn’t let new urban identities take root, as families remain village bound.

Modi – disrupting the status quo

No surprise then, if the 657 political parties (many are moribund) that are registered with the Election Commission vie for existing group interests as vote banks. There are only two examples in the past three decades which go against this grain of vote bank politics. The BJP came to power at the national level in 2014 by disrupting traditional identity-based vote banks. In a powerful outreach to young, aspirational India, Prime Minister Narendra Modi provided the instant hope of jobs through a government which worked for them, not against them. This enlarged support beyond the BJP’s traditional vote banks — upper caste and bania groups.

Modi exults in the hard work and determination that enabled him to overcome his humble origins – chaiwala (tea server) – in status quoist India. Mayawati – BSP and Mamata Banerjee – Trinamool Congress are female avatars of Modi.

It helped that Narendra Modi is himself from a backward caste. His is a rags-to-riches story. More important, he flaunts his humble origins and makes a virtue of his struggle to make good. More conventionally, he publicly dons the mantle of the selfless “sevak”. Anybody in the audience could be him, if they only had the gumption to succeed.

AAP – the new “Left”

The Aam Aadmi Party had similarly disrupted traditional identity politics in December 2014. It fashioned a winning alliance of the urban poor and neo-middle class against the corruption of elites in the Delhi state election. This anti-establishment, anti-corruption model is now facing a test, for its resilience and appeal, in the rural settings of Punjab and the BJP stronghold of Goa — both of which are “rich” states.

Its a tough world out these

Like the Congress during the post-Independence period, Mr Modi’s BJP is shaping a new India. It is an India that recognises today’s harsh international realities. First, unlike the rosy expectations of the 1950s, foreign aid, as an instrument of change, is dead. Economies need to fund their own development, by borrowing from the market or collaborating with foreign investors. This requires governments to bend before those who have the surplus capital; ship up to strengthen their own economies or continue to lag. Second, the consensus of the 1980s, that markets could substitute for the State’s inefficiency, is less credible, particularly after 2008. Strong states seem inevitable, albeit exercising judicious restraint while regulating markets.

A Nobel for the Communist Party of China?

For lifting more people out of multi-dimensional poverty that ever before; for adapting ideology to market realities and for standing true to their national objectives, the Nobel goes to …….

China has been the most successful economy, post 1990. It deserves a Nobel Prize for overcoming massive poverty and low levels of human development to become the factory of the world. It accounted for 1.5 per cent of world GDP in 1990 — the same as India. Since then it has cornered more than a fifth of growth in world GDP. By 2015 it accounted for 15 per cent of world GDP and has liberated nearly 300 million people — almost as many as the population of the United States — from poverty.

The Chinese story is of a single-party-managed mega-nation. By mixing market principles of merit and competition with the political energy of a proactive state, it has fashioned a massive politico-industrial machine. China has little patience with the effete romance of liberal idealism. Theirs is the classic hunter’s approach to life — smart strategy matters more than social ideology for filling your belly and remaining stronger than your adversary. This approach resonates in a world where persistent vulnerability to poverty; falling real income and increasingly skewed income distribution clouds even the rich world.

Where is the leadership in India?

Reverence for the absent trumps concern for the living, for gathering votes, in mystical India

Mr Modi’s world is that of realpolitik. Performance and outcomes matter the most. In contrast, the other national parties seem dated. The Congress — once a people’s movement, albeit led by professionals — is dormant. The Left is trapped in ideological echo chambers, seemingly unaware that organised, permanent workers are a diminishing vote bank. That economic forces have moved value addition beyond the spatially focused, integrated work areas, of the industrial age. The Lohia movements of the late 1970s rallied the backward castes into regional parties. But these lack vision, credibility or sustainability, beyond their narrow vote banks. The dalits have been transactional in their support for parties, although Mayawati has tried to substitute the Congress with a rainbow-style coalition. Muslims remain boxed into a defensive stance, perpetually seeking the status quo rather than transformation.

Where then do we turn to for leadership in India? The BJP is a clear and credible option. The mantra is that the government must focus on economic inclusion and social inclusion will follow. To take a practical example — higher government revenues from a more efficient tax regime can enable transfer of universal basic income to the poor and marginalised. This neatly avoids the clunky and inefficient option of physically providing cheap goods and services to the poor and caste or community-based support for the marginalised. It may also reduce corruption significantly by around one per cent of GDP.

A new social compact – trade entitlements for opportunity

The existing social compact between citizens and the State should be reworked. Will citizens be ready to give up their entitlements and de facto freedoms, in return for the State providing more economic benefits — security, macroeconomic stability, jobs, infrastructure and access to healthcare? With money and smartphones in their pockets, people — including the poor — will be able to shape their own societies, without being clouded by the past seven centuries of civilisational shibboleths dumped on them. Can Mr Modi get past the elites who benefit directly from the status quo? 2019 will tell.

The thought of Modi, an original and innovative doer if ever there was one, copying anyone, is so implausible that the first instinct is to perish the thought at birth. But it is interesting to list how Modi could “do a Deng” for India.

Deng Xiaoping inherited a China wracked by the inefficiencies, but blessed by the upside of Communism. Principally, five decades of communism had deadened the innately entrepreneurial spirit of the Chinese and sank the economy under the weight of a burgeoning State. But communism had also proliferated a highly disciplined party cadre across the country-much like India’s bureaucracy-except that the Chinese Communist Party marches to a single drumbeat; that of the President/General Secretary/Chairman. In contrast, the Indian bureaucracy is a discordant orchestra with multiple political conductors.

Mao built his Party cadres to weed out all those who either were, or could become, dissenters to his thoughts. Deng used the very same party to unleash the Chinese “animal spirits”. Municipalities and provinces competed viciously with each other to achieve the highest growth numbers in a no-holds-barred, single minded commitment to the bottom line, which could put the partners of Lehman Brothers in the shade.

The extraordinarily successful U turn was not surprising. Party foot soldiers are rarely ideologically committed. On top of it, if there is something in the change for them, they take to it with gusto. The Party took to “capitalism” with a vengeance. It is only now- two decades later- that President Xi is trying to unravel the resultant bundling of public and private interests.

When Deng Xiaoping became the President of China, per capita Gross National Product (GNP) was double of India’s but only around two thirds of Indonesia and Philippines (1996 WB data). By 2012 China’s per capita Gross National Income (GNI) had become nearly four times that of India; more than 1.7 times of Indonesia and nearly double of Philippines. Poverty declined in China from “Indian levels” to just 3% by 2012. Rapid economic growth based on exports, manufacturing and jobs was Deng’s mantra. But we musn’t forget the sacrifices of the Chinese people, who suffered personal and economic deprivations at the altar of national economic growth.

Can Modi do a Deng for India?

Unlike China, India is a soft state. Our citizens live in an asymmetric economic and political environment. On average, our citizens are as economically deprived as the Chinese were. But they have become accustomed to significant levels of personal and political freedom, more typical of a developed democracy. The State “includes” everyone in its warm embrace through food, fuel and income subsidies, which successive governments have honed to a fine art. Significant interest groups all receive a special package of subsidies tailored just for them. The package may not be individually very substantial. It may be threatened by inflation and increasing public fiscal stress. But the important thing is that it exists as a symbol that the State “cares”.

The only way of getting citizens to vote beyond subsidies is to rapidly enhance their individual incomes to a level where stagnating subsidies no longer mean much. For this private sector jobs based growth is the key.

Unfortunately, the world economic environment is now even less supportive of inefficient economies than it was in the “go-go years” till 2008. India remains a hugely inefficient economy because of the high transaction cost of doing business, even by domestic entrepreneurs. Some of this is due to a very inefficient and decentralized but systemic corruption.

The magnitude of corruption grabs public attention. It is unseemly but it is not the main impediment to job creation, growth or poverty reduction. In an imperfectly regulated economy, with a large State sector, regulating corruption to reduce its incidence and impact is more important than eradicating it. East Asia in general and indeed China itself, illustrates this.

But bitterly contested democracy does not allow the ruling party the luxury of “plain policy speak” based on cost benefit. A well publicised war against corruption better satisfies the masses that tax money is not being wasted.

More substantively, a policy of adopting increasingly higher levels of transparency and the depoliticisation of economic regulation by transferring powers to autonomous, technical regulators, can significantly reduce the space for “crony capitalism”.

PM Modi, whilst condemning the “hate speech” of his errant Minister Niranjan Jyoti urged the Rajya Sabha: “let’s get back to work”. His words could well be heeded by government itself. Five fundamental institutional changes can create a Team Modi for targeting poverty; enhancing growth and increasing private sector jobs.

First, Captain Modi has to radically change the manner in which appointments are done in the Union government and adopt a transparently merit based system. For starters PMO should have an HR anchor identifying and tracking potential officers for these positions, using a variety of indicators.

Second, for improving the sustained effectiveness of the Union government, the PM has to ruthlessly prune the political executive and the bureaucracy, of elements who are, or have been ineffective or complicit in corruption. This is not about launching a witch hunt for the corrupt. It is more about identifying effective politicians and bureaucrats (of which individually there is an oversupply) and putting them in the right positions.

Third, it is not enough to improve the Union government. PM Modi has to talk Turkey with those CMs, who are similarly inclined to grow their states. Some, but not all, will be BJP governments. But the real issue here is to form alliances, not for political survival, as was the practice in the past, but for national growth. Network economies spill over across state boundaries and business uses such opportunities to locate where land is cheap, labour is abundant and pre-existing infrastructure is nearby.

CM Naidu previously used this model of cross border spill-over from Karnataka and Tamil Nadu to Andhra Pradesh’s benefit. Western UP and Haryana have similarly benefited from the economic dynamism of Delhi, irrespective of what their State Governments were up to. It is not necessary to have every CM on Team Modi’s Bench. Just getting 50% onboard, sprinkled across the country, can generate strong growth impulses nationally.

Fourth, a institutional focal point for getting CMs on board is needed. The National Development Council exists, but needs support. At the heart of the change is the willingness to share with the states, the fiscal and administrative powers available in the erstwhile Planning Commissions. How it’s is structured will be critical. Yet another anemic Think Tank is hardly fit for purpose.

Fifth, the key administrative unit, at the cutting edge level are the 604 Districts in rural areas and around 3255 “towns”. It is at this level that all reform and change is implemented. Unfortunately, this level of administration remains completely divorced from the direct responsibility for achieving the three point agenda of growth, jobs and poverty reduction in their own areas. This has to change if we are to “Do a Deng”. China determines local targets for national objectives. We must do the same.

PM Modi must provide incentives to States to “push back” senior officers from clunky state secretariats to the field. State secretariats (as also the Union Secretariat) must be slimmed down and District and urban Local Bodies strengthened. This can restore technical competence and gravitas to district and local body administration. The minimum service in field postings for IAS/IPS officers, before they can go to the State Secretariat must be increased to 15 years from the 9 years necessary today.

Every District and Town will also need base line studies of jobs, poverty levels and the size of the local economy. Their annual growth and poverty reduction targets and achievements must be available publicly. The share of local resource allocation must increase and be aligned with the path to achieve these objectives at the local level.

Today District Plans are just local segments of state government projects with specified outputs but with less than adequate linkage to the three overarching objectives. Local “Planning” is more about appeasement of local politicians rather than about achieving national objectives. More rigorous project selection guidelines; filters for assessing poverty reduction, growth and job creation potential; better oversight of expenditure and public participation in decision making are the underpinnings of success.

PM Modi does not have a centralized Party based executive to rely upon, as Deng did. But he can forge a Team of politicians, bureaucrats and non-government professionals who have a passion for lifting India out of poverty via economic growth and private sector jobs. Many are waiting for his call.

India is caught in the quintessential indecisiveness of the fictional, Danish, Prince Hamlet, created by Shakespeare, who agonizes over “to be or not to be”, loosely applied here as “to go or not to go”, to the forthcoming Commonwealth meet in Sri Lanka.

Apparently, at issue is only how to deal with the outraged Tamil sentiment, should the government decide to participate, since this could undercut support for the Congress, amongst Tamil Nadu Members of Parliament, post the 2014 elections.

That the Sri Lankan army butchered their Tamils, both those heavily armed and the unarmed innocent, is clear. However, this is really no different from what is happening in Syria and what occurs in every place, where citizens decide to take up arms against the State.

The fundamental basis of the State, is its monopoly over violence. The manner in which violence is used, reflects the character of the State. In developed democracies, State violence is only permitted if aligned to the principles of the Rule of Law. For example, the State’s right to take away a citizens rights, liberty or life, is constrained by the legal requirement to follow the process of law. In pure forms of autocracy and monarchy, it is the ruler who has the power over life, death and taxes. Less developed democracies, like ours, fall somewhere in between. We allow the police and army to give the go-by to the rule of law, in areas of extreme civil unrest as in the North East in the 1970s to 1980s and Punjab, in the 1980s. Some, like Kashmir and the Maoist tribal belt in Eastern India continue to be endemic areas of conflict.

We are being hypocritical, if we are willing to suppress violent, domestic unrest, with a strong hand, but pretend to be squeamish about the manner in which Sri Lanka dealt with the Tamils.

No one can condone the killing of civilians by the State anywhere, but it does happen in poorly governed States. Once the personal, social and economic cost of taking up arms is lower for a citizen, than the benefits of remaining pliant to an oppressive regime, it becomes “rational” to revolt. Civilian deaths are collateral damage for the ensuing war to impose the supremacy of the State.

Mahatma Gandhi of course had the perfect, albeit difficult, strategy for citizens to deal with coercive regimes. Negotiate with the regime to make life incrementally better for citizens. Draw red lines, beyond which you will not be pushed. Oppose the regime thereafter, not by force, but through “Satyagraha” (passive resistance). By behaving thus, citizens retain the moral high ground. This moral high ground was not maintained by citizens in Sri Lanka, as it was not in Punjab and has not been in Syria, Kashmir and Maoist East India. By losing the moral high ground, citizens descend to the level of warriors and the rule of war replaces the rule of law.

Tamil Indians understandably feel compelled to highlight the ruthlessness of the conflict. But is it not better to focus on what India can do next, to mainstream the Sri Lanka Tamils, rather than merely lament the past.

India has itself wisely used an entire gambit of measures, including special financial support, positive discrimination and political consensus, to pull the Seven Sisters (seven Indian States in the North East) into the national mainstream. Of course, it also helps that we are a genuine democracy. Hospitality, high-end retail outlets and private nursing services in metropolitan India are invariably manned by in-migrants from the North East. Sikkim, the most recent entrant to the Republic (1975), is poised to become a global, organic, tourism hot spot.

Dr. Singh, our Prime Minister, outlined his principles of “Panchsheel” yesterday, to include value based, enlightened self-interest, but usefully, left unclear, what our “values” are. But surely, we should apply the same value system to assess governance standards in foreign governments, as we use to rule our own citizens. By these standards, Sri Lanka is unexceptionally unfortunate in having treated its citizens shabbily, but they are no exception.

Perhaps our values are identity specific. Perhaps we view shabby treatment, by foreign governments, of their citizens of Indian origin, more severely. This is an entirely reasonable approach and consistent with our anti-apartheid stand in South Africa. But this is not a State visit by the Indian PM to Sri Lanka which could be interpreted to mean India condoning the killings. The choice of venue for the CHOGAM is incidental.

It is all very well for Tamil Nadu politicos to play to their gallery but that is about as much traction, as there is, for the “not to go” groupies in India. If we can shake hands with Pakistan, over the blood of our soldiers, in the larger interest of regional security, surely we can be one of the many Commonwealth members in Colombo, nudging Sri Lankan towards Tamil integration.

India has been extremely pragmatic and successful in dealing with internal rebellion, albeit at significant cost to the unfortunate individuals caught in the ensuing war. Rapid growth, with equity, along with the hope of transition to democratic governance, is our medium term solution for dealing with domestic disaffection. We should sell this model to Sri Lanka. It is time for the PM to fill-in his travel request for Lanka.